When faced with decisions about retirement, how you want to receive your super may be high on your list – whether you choose to receive it through regular pension payments, withdraw it as a lump sum, or like many people, maybe a combination of both.

There’s generally no right or wrong answer – it depends on your personal circumstances, your retirement plans and what the best strategy is for your circumstances.

Comparing options

Let’s take a look at some of the features of both options – a retirement pension (or income stream), compared with a lump sum benefit.

From a tax perspective, all super, whether it’s paid as a pension or a lump sum, is tax-free after you turn 60. If you’re under 60, tax is generally payable on the taxable component of your super. 

Leaving your money in the super system through a pension account may have some advantages, such as:

  • Tax-free investment earnings, compared with investments outside of super that generally attract tax on earnings
  • Flexibility to choose the amount you receive in pension payments each year – subject to a minimum percentage of your account balance, and a maximum percentage for transition to retirement pensions – and frequency of your payments
  • Reassurance of receiving a regular income, with the option to withdraw an extra lump sum if needed.

There may also be some drawbacks to a pension account, such as your account being exposed to investment markets, and therefore positive and negative returns potentially affecting your account balance.

There’s also no guarantee that your account will last for your lifetime, as your pension payments will stop once your account balance reaches zero.

Withdrawing super as a lump sum might give you more freedom and flexibility to make larger purchases, such as property, renovations or travel, or paying off any outstanding mortgage or other debts.

However, with your money in a bank account without restrictions you may also be tempted to spend a larger amount, meaning you could risk running out of super earlier.

It's also worth considering that once you withdraw your super, you may not be able to put it back into the super or pension system down the track if you change your mind.

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Getting the right advice is important

When you take the above choices and factors into account, together with the potential tax implications and possible effects on Age Pension or other government entitlements, it’s important to get the right advice for your circumstances before finalising any decisions. As a Group Super member, there are different advice options available to you.

 

Find out more

Other useful resources

    Financial decisions at retirement

    Retirement, and how it may be funded, can take on different meanings from person to person. This booklet provides detailed information that may help with your planning. (Source: ASIC MoneySmart)

    Account-based pension calculator

    Try this handy calculator to help you determine how long your pension may last, and options to help make it last longer. (Source: ASIC MoneySmart)

    Retirement income

    In retirement, your income will likely come from more than one source. This article provides tips to help you make the income choices that are best for you. (Source: ASIC MoneySmart)